Over the past few decades, consumer packaged goods (CPG) companies have built longer and more unwieldy global supply chains without seriously considering the ever-increasing costs of managing them and the likelihood that their sheer length would make them less able to meet the needs of local consumers. Moreover, the possibility that these complex supply chains might create unmanageable risks to product inventory, quality, and safety was given short shrift. Simply put, today’s supply chains were built on yesterday’s blueprints, in a world where low energy and transportation costs, cheap labor, relatively inexpensive raw materials, and scarce environmental regulations were fixed assumptions. The supply chain of the future, by contrast, will require capabilities to make it leaner, greener, and more tailored to manage increasing fragmentation and complexity.
Global supply chains are already under increased pressure to deliver lower costs, in part to help offset generally rising costs for raw materials and energy. That pressure may be dialed up even further as governments around the world put a price on carbon emissions and establish new regulations on waste by-products. Large swings in exchange rates are also contributing to supply chain woes by driving shifts in demand and changing the economics of production. At the same time, as CPG companies emerge from the recession, they need to stay ahead of the curve on longer-term changes in demographics. Shifts in consumer behavior taking place across markets are making it harder to satisfy an increasingly fragmented customer base without reengineering the supply chain.
Because of public demands for environmentally sustainable business practices, companies will also need to rethink their choices in product design and process technology. This is particularly true in the case of the ingredients they use, the packaging that is required, and the quantity of materials and energy consumed by manufacturing processes. They will also need to realign their supply networks to build more flexibility and adaptability into their processes while reducing their carbon footprint.
Finally, CPG leaders will need to engage in larger collaborative networks to better understand sourcing decisions and share information on new production processes and technologies. As Anheuser-Busch Companies can attest, even small changes can have a meaningful impact on the bottom line: The company worked with key suppliers to help it reduce the lid diameter for four types of cans, saving 17.5 million pounds of aluminum in one year alone.
During the worst of the downturn, the mandate from investors to executive teams and boards at engineered products and services companies — including those in aerospace and defense, industrials, the automotive sector, and transportation — was unequivocal: Improve liquidity and cash flow. Management turned its attention back to basics with a focus on cost reduction and capital restructuring, and developed a heightened sense of priorities. On second look, though, these crisis-driven short-term remedies may have only exacerbated U.S. industrial troubles in a globalized economic environment. Competitors in emerging countries were not immune to the recession, but they were still operating in a growth environment. They were able to continue building on their strengths in engineering, product development, critical skills, and low-cost supply chains even as they endured their own economic woes.
The shifts in global output are striking. The International Monetary Fund projects the world economy will have shrunk by 1.1 percent in 2009, with mature economies, including the United States, Germany, and Japan, contracting by 3.4 percent and emerging economies growing by 1.7 percent. In 2010, overall global growth is expected to hit 3.1 percent, but China is forecast to grow by 9 percent and India by 6.4 percent. Meanwhile, growth in the United States is projected to be 1.5 percent, and in Europe, just 0.3 percent.